US Q3 economic growth drops to 3.4%

FILE PHOTO: U.S. President Donald Trump gestures as he delivers a speech during the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 26, 2018. REUTERS/Denis Balibouse/File Photo

The U.S. economy slowed in the third quarter a bit more
than previously estimated, but the pace was likely strong enough to keep growth
on track to hit the Trump administration’s 3 percent target this year, even as
momentum appears to have moderated further early in the fourth quarter.

Gross domestic product increased at a 3.4 percent
annualized rate, the Commerce Department said on Friday in its third reading of
third-quarter GDP growth. That was slightly down from the 3.5 percent pace
estimated in October and well above the economy’s growth potential, which
economists estimate to be about 2 percent.

The revisions to the third-quarter GDP reading reflected
markdowns to consumer spending and exports. Inventory accumulation was,
however, much bigger than previously estimated. There were downward revisions
to business spending on equipment and nonresidential structures, as well as residential
investment.

The economy grew at a 4.2 percent pace in the April-June
quarter.

The Federal Reserve raised interest rates on Wednesday
for the fourth time this year, but forecast fewer rate hikes next year and
signaled its tightening cycle is nearing an end in the face of financial market
volatility and slowing global growth.

The U.S. central bank slightly lowered its growth
projections for 2019.

Growth is being driven by the Trump administration’s $1.5
trillion tax cut package, which has given consumer spending a jolt. The fiscal
stimulus is part of measures adopted by the White House to boost annual growth
to 3 percent on a sustainable basis.

But the economy appears to be slowing in the fourth
quarter amid a widening trade deficit, sluggish business spending on equipment
and a weak housing market.

The slowdown in growth is expected to spill over into
2019 as the fiscal stimulus fades and a bitter trade war with China and strong
dollar undercut manufacturing. Growth estimates for the fourth quarter are
around a 2.9 percent pace.

An alternative measure of economic growth, gross domestic
income (GDI), increased at a rate of 4.3 percent in the third quarter, instead
of the 4.0 percent pace reported last month.

The average of GDP and GDI, also referred to as gross
domestic output and considered a better measure of economic activity, increased
at an unrevised a 3.8 percent rate in the July-September period.

After-tax corporate profits were revised up to show them
rising at a 3.5 percent rate in the third quarter instead of the previously
estimated 3.3 percent rate. Corporate profits rose at a 2.1 percent pace in the
April-June period.

Inventories increased at an $89.8 billion rate, instead
of the $86.6 billion rate estimated in November. Inventory investment added
2.33 percentage points to GDP growth. That was more than the 2.27 percentage
points reported last month and was the biggest contribution since the fourth
quarter of 2011.

Consumer spending, which accounts for more than
two-thirds of U.S. economic activity, increased at a 3.5 percent rate in the
third quarter, slightly down from the 3.6 percent rate estimated in November.